Wednesday, January 4, 2012

Hungary: "A Magyar martingale"

First up, FT Alphaville:

(We mean martingale, the betting strategy, not the quant model!)
Here’s the thing about Hungary, as we see it anyway. If you look at
things like the current account, for example, it says “fixable by the
IMF”. It’s in surplus, if deteriorating.
Everything the government does, however, says “bonkers”.
Bonkers, verging on sinister, and becoming increasingly binary: heads, an IMF loan and tails, a nasty well… tail (risk).
At any rate, it is now normal to be ultra-bearish on Hungary. On Wednesday alone:

Five-year Hungary CDS hit a record high (over 700bps, according to Markit).

Five-year Hungarian bond yields rose above 10.5 per cent.

Above all, the Hungarian forint continues to hug all-time lows against the euro.

The last development is especially worrying because it suggests that the central bank’s past rate hike and those anticipated
in the future may no longer be offering much support to the forint, in
place of using the FX reserves which Hungary’s last IMF bailout helped
to restore (and which are much healthier than in 2008). Not a good
prospect when the central bank is at the government’s heel, there is now
constant speculation that the next step will indeed be to raid the
reserves to cut government debt (which the government constantly
denies), and the IMF won’t talk until the central bank is freed from its
new legal dependence....MORE

Zo, your Hungarian mortgage is denominated in euros at Austria’s Creditanstalt?*
Und your income is in forints?
You can’t work enough hours to cover the debt.
Keep an eye peeled for the Jobbik party goons.

*
Creditanstalt, which you probably remember for its role in turning the
“Pretty good” Depression into the “Great” Depression is now owned by
that pillar of strength, Italy’s Unicredit.

Any news on Unicredit?
What a clusterfarge.
If I were an Arch-Duke (or a banker) I’d stay clear of the eastern provinces for a while.